The equation is as follows: MV = PY where
M - money supply
V - velocity
P - price level
Y - real output
Provide a brief answer to each question below:
How does the quantity theory of money and the liquidity preference theory differ in their implication about the velocity of money factor?
How would you expect velocity to typically behave over the course of the business cycle?
If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain.
"If nominal GDP rises, velocity must rise." Is this statement true, false, or uncertain? Explain.
Why is Keynes's analysis of the speculative demand for money important to his view that velocity will undergo substantial fluctuations and thus cannot be treated as constant?